For people that purchased property in the USA between 2003-2007 it´s been a pretty disastrous 3 years. Don´t think anybody will disagree with that.
 
What about the people that bought in 1980 or 1990 or 2000? As the chart below illustrates, they are looking just fine. The red line is property prices adjusted for inflation every year and the blue line is average property prices in each of those years.

 

 
 
 
What about the people purchasing today at the 2001 prices? Where will they be in 10, 20 or 30 years?
 
Buying at historical lows means the rental yields will be high and once financing becomes available the supply of buyers (and property prices) will increase dramatically. If you purchase in 2010 at 2001 prices and sell in 2015 at 2005 prices, you´ve more than doubled your money.
 
However, the longer term view will depend a lot on interest rates and inflation too.
 
Unlike the Greeks, the US government can inflate its way out of trouble. Whatever your opinion is of the US debt (53% of GDP by the way), it´s ability to borrow is greater than any other country on the planet thanks to the unique status of the dollar.
 
Borrowing levels will have to stabilise though, and although there are lots of ways of doing that (some painful, others problematic) inflation is going to be a side effect. 
 
If inflation does take hold in the US, that means interest rates will go up, which means higher mortgage payments for people. That´s not good if you have a mortgage.

Historically, that has also lead to higher rents.

It has also led to higher property prices. 

So where will that leave the proud owners of distressed Florida properties with no mortgages in solid locations with steady renters?
 
Laughing probably, all the way to the bank.

 

Kind Regards

Colin Murphy

Harsh as it may sound, there are several ways those who are still liquid can profitably take advantage of a global downturn which is still causing much suffering to others 3 years after the credit crunch began.

One of these ways, which Torcana identified more than two years ago, is to purchase highly discounted and undervalued properties from distressed sellers. To maximise the return and minimise the risk of these types of properties, they must be purchased
 
- in wealthy, democratic economies
- with a history of renewal and recovery from recessions
- in fundamentally sound cities and neighbourhoods
- where locals rent long term
- where locals have and are currently purchasing these properties

Apart from that, the properties must be fully completed, cashflow positive and in well located and well run buildings or communities.
 
I´m sure there are plenty of other types of properties that can make you a healthy profit, but these are the ones we´ve identified with the best risk/reward ratio. It´s difficult to see how these kinds of properties will give any serious problems over the next 5 years and the potential benefits are huge.

So our criteria is very strict, but we´ve found plenty of properties that tick all these boxes and the latest is Arbor Lakes in Orlando. Here you can buy for 30 cents on the dollar in a beautiful and pre tenanted condo with 7-9% net rental yields.
 
If you haven´t received an information pack, please send an email to investments@torcana.com and request one.

 

Kind Regards

Colin Murphy

Keep looking North!  Opportunities in UK residential property

Has the appetite for UK residential property returned after the extremely bumpy ride of the last few years? Well, from speaking to a number of our UK and overseas clients, the answer is “absolutely”.

Back after a two year hiatus…

In fact, according to figures recently released by the Investment Management Association (IMA) sales of property to funds soared in October 2009, making property the most popular asset class for the first time in more than two years. Investors are being tempted back into the UK residential property by the recent economic recovery and the recent increases in value of UK property.

What´s up north then?

That’s all well and good but is it the right time to go back in and invest in UK residential property and where am I going to see real returns on my investment? London and the South, the Midlands, the North?  Where is the real ‘value’ to be secured in residential property? Well, after careful study of recent buyer transactions, house price movements and various economic trends, we have targeted sourcing quality, high yielding, off market property in areas that have proven to return solid long term growth prospects in the city centres of Birmingham, Manchester and Liverpool.

Booming Birmingham

So, why these city centres and not others?  Let’s take a look at Birmingham for example.  Situated in the heart of England, it is the UK’s second city; it is a centre for leisure, wide ranging culture, internationally renowned shopping, major events and exhibitions, world class sport, vibrant nightlife and a thriving financial sector.  It is at the centre of the country’s road and motorway network, has three mainline rail stations and its own airport. With a strong business and student community, coupled with our quality investment product it all stacks up! We have formed strong long term relationships with some leading developers in these cities and look forward to releasing details of new projects to you very soon. 

Is the UK fairly valued? We think so.

But does the UK residential property market offer fairly valued residential property? We think so. Two main reasons why. There is a clear lack of supply of residential stock in relation to the demand and the recent super low interest rates are propping up prices. So certainly in the short term there is good value here. In the long term supply will inevitably increase and as the economy normalises, rates will rise making now the best time ever to invest in UK residential property…… at least in the three city centre areas we’ve just highlighted.

Latest from London

As for London, it has seen continuous inward investment at the top of the market, where there has been a flurry of transactions in ‘super prime’ central London property from foreign buyers looking to take advantage of the weak pound. There are opportunities in London but only for those that have large deposits, so able to secure favorable borrowing. We feel prices are clearly inflated still and will continue to only go one way offering very little value to most investors. 

I will continue to monitor and gage the movements in the UK residential market and off course provide you with details of our latest discounted, off market investment opportunities.

Until then, all the very best,

Regards,

Andy 

Torcana UK Director

andy@torcana.com

What if Mr. Buffett´s prediction is right?

Let´s assume for a moment that his prediction of a US housing recovery sometime in 2011 is correct and let´s also bear in mind that people who have betted against him in the past haven´t done so well.  

Is it better to wait until 2011 and start investing in property once prices start recovering? Or might it be worth using some money sitting in a (very) low interest savings account to purchase well priced high quality properties while they are still available?  

It´s been a crazy 18 months in the real estate business, but as the Sage of Omaha himself said “Look at market fluctuations as your friend rather than your enemy; profit from folly rather than participate in it”.  

Translation: These fluctuations caused a flood of motivated sellers to appear. They won´t stay so motivated indefinately.

 

Kind Regards

 

Colin Murphy

www.torcana.com

Investors and property agents were jumping for joy last week when billionaire Warren Buffett said the U.S. residential real estate slump will end by about 2011. 

According to Buffet’s latest annual shareholder Letter, “the industry is in shambles for two reasons, the first of which must be lived with if the U.S. economy is to recover. This reason concerns U.S. housing starts (including apartment units). In 2009, starts were 554,000, by far the lowest number in the 50 years for which we have data.

Paradoxically, this is good news. People thought it was good news a few years back when housing starts – the supply side of the picture – were running about two million annually. But household formations – the demand side – only amounted to about 1.2 million. After a few years of such imbalances, the country unsurprisingly ended up with far too many houses.” 

Jokingly, Buffet offered three ways to adjust the imbalance:

1. Blow up a lot of houses, a tactic similar to the destruction of autos that occurred with the “cash-for-clunkers” program.

2. Speed up household formations by, say, encouraging teenagers to cohabitate, a program not likely to suffer from a lack of volunteers.

3. Reduce new housing starts to a number far below the rate of household formations. 

“Our country has wisely selected the third option, which means that within a year or so residential housing problems should largely be behind us, the exceptions being only high-value houses and those in certain localities where overbuilding was particularly egregious,” he said. “Prices will remain far below “bubble” levels, of course, but for every seller (or lender) hurt by this there will be a buyer who benefits. Indeed, many families that couldn’t afford to buy an appropriate home a few years ago now find it well within their means because the bubble burst.”

 

Kind Regards

David Shaw

Sales & US Sourcing Manager

I hear this question daily, all that shines is not gold so please let me outline my view of the Florida property market.

A new build 900 sq ft 1 bedroom sea view condo in Miami cannot be measured against a 15 year old timber frame 550 sq ft  1 bedroom/studio in Ft Myers. It is essential to measure apples against apples. 

It seems obvious when phrased like that, but it isn’t stopping both amateur and professional investors of falling into the trap. Whether property prices are increasing, stagnant or falling – you still tend to get what you pay for.

Picture the town / city / village where you currently live and imagine there are many distressed sellers. Would your first reaction be to hunt down the very cheapest property available just because it is cheap and tenanted?  I’d imagine the answer for most of you is no, and that many would prefer to pay a little extra to get a discounted property in a nicer part of town, where the tenants are solid and a resale market can be clearly visualized.  This is how we feel about Florida.

Not everybody takes this approach. Over the last few months I have seen UK and Irish agents engage in what I can only describe as a “race to the bottom”. There is real pressure in this business to source the very cheapest distressed deals possible with scant regard to the ABC’s of smart investing.

It’s a pretty risky strategy for an agent to engage in, and it is not one that would be of interest to Torcana. No doubt the commission will come rolling in for a few months, but these agents will quickly reach a point where they either have to ignore large numbers of client complaints or they will have to dedicate ruinous amounts of company resources to solving messy aftersales issues.

It is our view that investors should not be satisfied with an agent who just sources property. A good agent is an essential service for a non professional as they help him/her (a) find the smartest long term investments available, (b) ensure the pitfalls of buying in a distressed market are avoided and (c) assist with a smooth transfer of ownership. 

Looking forward to your thoughts.

Kind Regards

David Shaw

Torcana Sales Manager

 

What type of properties do American tenants want to rent?

Is it easy to tenant a property?

How do I find out if a resort contains a lot of untenanted properties?

Calculating your net rental income / yield

Which developments are eligable for financing?

How do I know which developments are affected by foreclosures?

What is Home Ownership Association?

What are Property Taxes?

How do I know if the property is in a popular location?

 

 

 
 

What type of properties do American tenants want to rent?
Americans want to rent and buy large condos with 1 beds starting at 900 Sq FT, 2 beds 1050 Sq FT, 3 beds 1350 Sq ft, with good aspect, tall ceilings, new stainless steel appliances, new kitchen cabinetry, new carpeting and new tiling. They prefer relatively new concrete build apartments with 24 hr security in crime free areas. If your property does not display most of these attributes look closely at what is being offered. Do not look for immediate proximity to industry or job centres as Florida does not have many traffic jams and locals do not mind a 25 minute commute to work. The best rental and residential neighborhoods are not generally known or frequented by tourists.

Is it easy to tenant a property?
Do not believe an agent who tells you that a property can easily be re-tenanted should your tenant skip town. Finding tenants is hard work, and for some properties it can take a long time.  It is true that some well known developments are 100% occupied with a waiting list for vacancies. However these properties cannot be purchased for less than $ 70,000.

How do I find out if a resort contains a lot of untenanted properties?
I often see a situation where unwitting buyers are left to re tenant their single property while the developer has 100 vacant properties with a rental agency in the clubhouse of the development – talk about David vs Goliath. Always ask your agent how many untenanted properties are there in the community and verify this information independently by using the lettings section of craigslist.com or ask an independent local letting agent for this information. In the US, this information is available to the general public.

Calculating your net rental income / yield

To calculate net rental yields and income effectively please make sure you take the following into account and verify it with the letting agent:

Price: Both contract price and closing costs

Rental Income:  The actual monthly rental figure taking into account any incentives offered. Let’s say an agent tells you that the property is tenanted at $900 per month – sounds good. It’s not so good if the rental agent gave 3 months for free to the tenant to secure a quick letting - giving 15 months’ rent for the price of 12 =  $ 720 per month .

Running costs: These costs are unavoidable in the state of Florida, please make sure you always factor them all in to your yield:

1. HOA (home ownership association) – costs of maintaining the communal facilities and reserves
2. Property Taxes: every building in the USA has to pay them
3. Condo Insurance : allow min $ 50 per month
4. Rental management: fees are generally 10% of total monthly rent.
5. IRS reporting: You are legally obliged to make an IRS (tax) return. My accountant charges $ 200 per year to do this.

Gross rental income – Running Costs
    ———————————                             =   Net Rental Yield
Purchase price + closing costs

  Financing: In certain developments, getting finance for Americans is a lot easier than it is for foreign investors. Local buyers can receive an $8000 federal first time buyers grant and a 97%  FHA mortgage (Federal Housing Authority) underwritten by the big two federal mortgage lenders Freddie Mac and Fannie Mae.

Fannie and Freddie have rating guidelines for lending. If your community does not have FHA mortgage approval this will usually indicate that there are some hidden issues in the development. These issues need to be discussed as they can have a dramatic affect on your resale market.

If there is no FHA Approval for your community some or all of the following criteria will not have been met: 

• At least 51% of the total units in the project must be owner occupied.
• At least 90% of the total units in the project have been sold.
  
• No single entity owns more than 10% of the total units in the project.
  
• The project, including common areas, is complete with no special assessments and no legal actions pending.
  
• The owners association has a reserve plan and a reserve fund, separate from the operating account and adequate to prevent deferred maintenance
  

Foreclosures: Some developments have very high rates of foreclosures or short sales.  All developments will have a few but some are devastated by them and the effect on the development can be felt in many ways:  the running costs of your property could increase and the quality of the communities occupants can deteriorate. An American owner occupier will avoid buying in a very distressed development.  

Home Owners Association (HOA) dues. A local buyer looking to purchase your property will look at the HOA cost. This payment is for the upkeep and maintenance of the community facilities, buildings, security and insurance. Some communities that were largely sold to investors with no money down, adjustable rate mortgages and a host of developer incentives are now in big financial difficulty.

When there are a large number of foreclosures and when owners are not paying their HOA dues, this can lead to a gradual downgrading of the services, amenities and rental potential.

In order to survive, the community will often levy a “special assessment” on the remaining owners, which could lead to HOA dues doubling from $200 pm to $ 400 overnight and destroying your rental yield in the process.

It is always prudent therefore to verify if there has been a special assessment in the past or if any are likely to be seen in the future.  This question should always be put to the HOA directly, they are legally obliged to tell you the truth on this matter - ask your agent for the number of the HOA and call them.

Sometimes, when a great looking property is being sold at a low price it is because the developer needs to sell his remaining units before the resort collapses – a bit like a chief executive dumping shares in his company a few weeks before bad results are announced.

If you do spot a unit you really like, you can reserve it and make use of a Florida law giving you a 15 day right of rescission. This allows you to do your due diligence and review all the condo docs and the HOA / Condo Budget.

Property Taxes:  Always verify the property taxes on the property you are buying. This can be done by finding what local county your property is located in and going to the County Property Tax Appraisers website and running a search on your exact property.  It will give you all previous sales history and a lot of useful information on your property. This information is public and easily assessed.

Location: Do not look for immediate proximity to industry or job centers as in general Floridians have very little traffic jams and do not mind a 25 minute commute to work. Middle class Americans look to purchase in areas with very low crime rates near good schools, sporting facilities, universities, parks, recreation facilities, low key village/town centres.

There are many more things to consider when looking at purchasing in Florida so please feel free to contact us before you make the decision.  These are just some of the questions Torcana ask and research heavily prior to bringing our clients the finished product.

Please feel free to email me directly on david.shaw@torcana.com to discuss further.

Kind Regards

David Shaw

Torcana Sales Manager

I’ve been making quite a big effort over the past six months to emphasize the speed at which the Florida market has been recovering from the credit crunch and property slowdown. Yesterday morning I received two graphs from one of my main contacts on the ground that will illustrate this far more clearly than my words have ever done. 

Graph 1: Supply in Florida has been falling dramatically for almost a year. This is because developers are not starting new construction projects and prices of existing stock have been slashed by up to 75%, thereby boosting consumer and investor demand (with a little help from US subsidies for first time buyers).

 

 

 

Graph 2: The market bottomed out in December 2007 and it took another 15 months before activity reverted back to late 2006 levels. Over the past six months, it has been quite frantic, which huge volumes of new contracts being issued to a wide variety of buyers.

 

 

 

Breaking through the pain barrier 

In short - developers, banks, agents, investors and homeowners all had to go through a world of pain between September 2006 and September 2009. Their counterparts in Ireland, Britain and mainland Europe have had it easy in comparison. 

Prices are still low, but they are not going lower, of that I am quite sure. There will always be good deals out there for the shrewd and well connected buyer, but the days of snapping up a high quality unit for $50-60k that used to cost $200-$230k are numbered.

The Villas at LaCita is one such untapped gem, and we’ve only 20 units to sell. They are tenanted, they are cash flow positive and they are in a great location. Some have very high rental yields and some have modest rental yields. 

If you want to take your pick of the very best, please visit http://tinyurl.com/torcana-lacita  and contact our offices for further information. 

Kind Regards

Colin Murphy

Torcana.com

There are a lot of misconceptions out there, and much of it is caused by internet misinformation. The internet is crammed with old, out of date and random opinions. Using the internet as an investment guide makes complete sense but relying completely on the internet can be a little like “self diagnosing”. You start with a pain in your thumb and end up with a terminal disease. This is a complex market and I think it is important to seek advice from people (not necessarily ourselves) who deal with it on a daily basis.  

With so many properties listed on the internet, it can seem that there is no shortage of great deals out there, but it’s quite difficult to find a bargain.

At least once a week a client will call me to say they have spotted a deal on the internet or through a US agent that seems too good to be true and they are either wondering if there is a catch or if I could help them secure it.  Sometimes I’ll have a closer look and within 20 minutes or so it’s usually apparent why it is being advertised at such a low price.

With countless millions of dollars lost to poor investment strategies over the past 15 years, it is more important than ever to consider the fundamentals of property investment before committing. I would never buy a property because it is cheap because value is very relative. I look at the location, the running costs, HOA dues, property taxes, insurance issues, crime statistics and the local rental market. Among other things, I will find out if it is new or recently converted, if it is timber frame or solid concrete build, if the HOA is solvent and the percentage of foreclosures in the community.  

I dedicate a lot of time to locating investments that do not carry these risks.   

 

Kind Regards

David Shaw

Sales & US Sourcing Manager

Torcana.com

I recently read a great quote from Noel Whittaker (Australian financial columnist). It struck me as particularly relevant for those who are unsure of where or how to make their next important financial move.

“Life is full of uncertainties. Future investment earnings and interest and inflation rates are not known to anybody. However, I can guarantee you one thing.. those who put an investment program in place will have a lot more money when they come to retire than those who never get around to it”

Apart from working, investing is the only method of generating long term financial independence. From a personal point of view, I’ve made more money from my investments than I have from the various salaries and dividends I’ve drawn over the past 15 years.

There was a lot of irrational behavior on display in Florida during the boom years. This irrationality forced prices too high and placed unwarranted trust in developers promising they would build luxury resorts that potential renters would flock to.

That property boom has bust, and the prices for certain properties in wealthy locations are completely irrational in the other direction – i.e. they being sold at too large a discount. While the instinct to wait for the macro economy to recover and “normality” to return before investing is understandable, it could turn out to be a counterproductive strategy if your aim is to create wealth for the future. 

There are still quite a few areas within Florida where high rental yields are available and the potential for capital appreciation is huge.

For example, I’m going to be a sizable chunk of this week speaking to clients about the twenty odd units we’ve available Flora Ridge. These three bed properties are tenanted, generate 9% net yields and used to cost more than $350,000 per unit. They are now available for between $114,500 and $115,500. I’m pretty confident these can be sold with a minimum of fuss in 3-4 years time for at least double that. In the meantime you’ll be taking home more than $10,000 per year net of all costs.

You’ll be hard pushed to find something better than that.

Kind Regards

 

Colin Murphy

Torcana.com